While life insurance is a must for basic financial protection of the poor as well as the middle-class, it is also essential for the upper-middle class and affluent Indians. Much of the wealth of the rich is locked up in physical assets and they own businesses which cannot be quickly converted into cash.

Life insurance products make the money available quickly in liquid form and in the most tax efficient way possible. Life insurance enables one to divide his property judiciously among his dependents. The policyholder can clearly mention in what proportion the policy proceeds should be distributed among the heirs, after his death.

In the absence of adequate life insurance, the heirs of a rich man may not be able to maintain shareholder confidence and as a result, the property value can fall. Prolonged legal conflicts with remaining partners can lead to erosion of wealth because of high litigation costs. So, it is in the interest of the dependents that the rich also set aside sufficient money in life insurance.

Cover liabilities

A rich industrialist may leave huge liabilities in addition to a huge volume of assets. In many cases, the heirs have a legal obligation to repay the liabilities. Ultimately, the heirs may not remain rich after repaying the liabilities. If some assets are set aside in the form of life insurance policies for the benefit of spouse and children, their standard of living will not fall significantly.

If some policies are taken under Married Women’s Property Act 1874, it is not possible to attach the policy money by anyone under any circumstances. So, life insurance helps a rich man in protecting a good portion of his wealth from the hands of creditors. In fact, asset protection is a very important part of financial planning of any individual, rich or middle-class.

Rich people are rich mostly because they are in possession of wealth that has been created over the last few generations. In all probability, the father and the grandfather of a rich man had kept a lot of wealth for posterity. In the absence of a sound wealth protection plan, it does not take much time to see the wealth getting eroded within a single generation in case the business situation is not too favourable.

Key Man Insurance (KMI) policy on the life of a rich businessman helps his partners get enough cash to hire a suitable replacement quickly in place of a deceased partner. Every partnership firm is in need of KMI policies. KMI helps them to remain rich even when a key partner passes away.

Assets kept in life insurance products have another important advantage. The value of this asset is not impacted by market risk although some interest rate risk will exist. In guaranteed return products, there is complete certainty of the value of a life insurance product at any point of time during the policy term.